Holiday Pay Should Include Commission

Update 14/05/2015:

This case has now been referred back to the Employment Tribunal and British Gas has now appealed that again. It is unlikely to be before the end of 2015 when that appeal is heard. The Employment Tribunal it did not consider reference periods and how to quantify a claim for the commission element of holiday pay. The principle that commission must be included in holiday pay is established law now, the still open questions is how to quantify it.

Our best advise at the moment is that in cases where a worker has no normal working hours, or has normal working hours but their pay varies according to amount of work done or the time of work employers should use an average of the last 12 working weeks to calculate how much holiday pay should be paid. If your ways of working mean that 12 weeks would not be representative, such an a system where all commission is paid annually, then 12 weeks may not be the appropriate reference period. In any case we advise all employers to take legal advice on this as soon as possible. Fox Whitfield are already dealing with multiple claims where employers have not changed their policies and are facing claims.

Paul can be contacted on 0161 2831276 or

Employment Law Solicitors – Head Office based in Manchester with offices located throughout the United Kingdom.

In a new twist on the law relating to holiday rights the European Court of Justice (ECJ) has held that holiday pay should take into account commission payments.

Currently the UK law, the Working Time Regulations, make it clear that employees are entitled to holiday pay based on their basic salary alone. This case suggests that is now incorrect as it is not compatible with European Law.

In this example an employee’s remuneration was made up of basic salary and commission. The commission was about 60% of the total remuneration. The ECJ said that the commission payments were directly linked to the performance of his work under his contract of employment. Therefore, the commission should be taken into account in the calculation of his statutory holiday pay.

This case is now being referred back to the Employment Tribunal which will need to consider how to interpret the Working Time Regulations following this decision. It is likely that they will do so in a way that will have far reaching implications for many businesses and their employees.

One possibility is that the Tribunal will say that statutory holiday pay should be based upon 12 month average normal pay. That would ensure that any commission payments paid over a year would be included. Another possibility is that they will use a shorter reference period of 12 weeks. This could mean sales forces trying to take their holidays immediately after busy periods to maximise their holiday pay. We shall have to wait and see how the details of this develop.

There are two other cases being heard in the EAT during the summer of 2014 looking at the extent to which overtime payments should also be included in the calculation of statutory holiday pay.

So what should employers do now?

1) Do nothing. Wait and see how these cases develop the law as they take their time going though the Tribunal and appeal systems. It may be that the UK courts limit the effect of the ECJ  decision.

2) Assume the UK law is going to have to change to comply with the European decisions.  Take the business decision to look at changing your holiday pay and commission rules and policies now. The risk of this is that we have yet to see how the UK courts will apply the law and you could end up having to change your rules twice.

So far, most employers seem to be waiting to see what happens next before making any changes.

We will update you as things become clearer, or more muddy.


Paul can be contacted on 0161 2831276 or

Employment Law Solicitors – Head Office based in Manchester with offices located throughout the United Kingdom.